J&J, of New Brunswick, N.J., could pay Phenex up to $135 million in an undisclosed up-front payment and development milestones for molecules emerging from the collaboration.

The total potential value of the deal is actually higher than the headline amount. "What we have counted is all clinical milestones up to and including approval," Claus Kremoser, CEO of Ludwigshafen, Germany-based Phenex told BioWorld International. Additional commercial milestones, as well as tiered sales royalties, are also attached to the agreement.

RORγt is a differentially spliced nuclear receptor subtype essential for the production of the inflammatory cytokine interleukin-17 (IL-17) in a subpopulation of T helper cells known as Th17 cells. It offers drug developers a small-molecule target with potentially similar – or superior – effects to those associated with antibodies targeting IL-17, which have shown spectacular efficacy in psoriasis.

"I think that's what prompted many companies to show an interest in RORγt," Kremoser said. Psoriasis is a special case, however, as the indication can be tackled with a subcutaneous formulation of anti-IL-17 antibody. "The big question is, will it also work in systemic lupus and rheumatoid arthritis?" he said. An orally available small molecule also would be easier and cheaper to make than antibodies and would be more acceptable to patients.

Although it has adopted a low profile until now, Phenex has been working on RORγt inhibition since 2008, and it has patented a broad chemical space of molecules that hit the target.

Unlike most nuclear receptors, RORγt is only expressed in Th17 cells and, therefore, offers a highly selective approach to damping down excessive inflammation, without having a wider immunosuppressive effect.

Achieving that goal requires molecules that can distinguish between RORγt and a related receptor, RORγ, which is more widely expressed.

"Certainly the goal is to target RORγt," Kremoser said.

Companies targeting nuclear receptors have so far experienced mixed results. "The big difficulty with nuclear receptors is not that they don't work," Kremoser said. "The problem is the therapeutic window is quite small." Many molecules that act on nuclear receptors have pleiotropic effects, so their use is strictly limited. "The big challenge with RORγ is it's considered to be a constitutively active receptor."

Targeting its RORγt subtype requires deep knowledge of the receptor's biology in vivo as well as in vitro. Some of the compounds patented by rival developers fall at that hurdle. "If you test those molecules, they turn out to be very poor in vivo, for which we think we have an explanation," Kremoser said.

Phenex and J&J, of New Brunswick, N.J., are now lining up against three other biotech-big pharma pairings. Exelixis Inc., of South San Francisco, and Bristol-Myers Squibb Co., of New York, entered an agreement in 2010. Lycera Corp. received $12 million up front and could earn $295 million more from an agreement with Merck & Co. Inc., of Whitehouse Station, N.J. A year ago, Pfizer Inc., of New York, and Karo Bio AB, of Stockholm, Sweden, signed a potential $217 million deal. (See BioWorld Today, March 4, 2011, and Dec. 29, 2011.)

Phenex has so far raised €22 million (US$29 million) in four funding rounds. The up-front payment from J&J "avoids the need for further financing." It will enable the company to undertake a Phase II trial with its lead compound, PX-102, an agonist of farnesoid X receptor in development for nonalcoholic steatohepatitis, a chronic inflammatory and fibrotic disease of the liver. The trial is due to get under way during the first half of next year.